Anil Menon, Technical Director, Synthesis Systems
5 common myths in adopting renewal management
It is a well-known fact that acquiring a new customer is 6 to 7 times more expensive than retaining an existing one. That’s the precise reason why renewal management is critical for any organization – not just for customer retention, but also for improvement in profitability.
A 5% increase in customer retention can produce 25% more profit. – Bain
However, the adoption of renewal management by the businesses is still underwhelming due to some common and widespread misconceptions. This blog touches upon some of those myths in adopting renewal management and hopefully enables organizations to improve their customer retention.
Here are five common myths around adopting renewal management:
Myth # 1: Contract management is the same as the renewal management
Whenever we speak to businesses about renewal management, the first thing that comes to their mind is contract management. So, they either say, “We have a contract management system. Why do we need another renewal management solution?” or “Contract management is very complex; we don’t need it yet.”
Myth buster: I think that is the hangup of the perpetual licensing world where contract renewal was the focus, especially in a B2B scenario. However, the subscription economy has simplified renewals into two essential parts:
- Contract management
- User renewal management
While the contract management has a broader focus of managing contract creation, financial risk, operational performance, etc., the user renewal’s singular objective is to build a recurring customer base.
Myth # 2: Home-grown renewal management system is better than using an existing one
Being a technology product company, it can be tempting to create specific tools in-house. Many organizations still think that building their renewal management system is a more convenient option than going with an existing solution; they believe if they have their platform, making changes and upgrades to it anytime would be a breeze.
Myth buster: Renewal management is not a plugin that you add to your licensing system. It can be time-consuming and expensive to be built in-house. With a considerable customer base, making a small upgrade also requires significant development effort. Hence, using a specialized platform will save your time and resources and fulfill your long-term goals.
Myth # 3: Manual renewal management is still a safe bet
Renewal management is a sensitive issue and errors can lead to bad customer experience. This is the reason many organizations still prefer to manage the renewals manually.
Myth buster: Manual renewal management might work when you have a handful of customers. But as you scale, the manual process is prone to more errors than one that is system-driven. The renewal management solution can manage hundreds to millions of renewals at a click of a button. The current days’ solutions can help you with customer-specific insights to help you cross-sell/upsell and also adds value to your product innovation. If you are still skeptical, you can safely automate all your low-value renewals and focus your energies on the high-value renewals.
Myth # 4: Renewal management is only for large companies
One other objection we keep hearing is that “We are an SMB and renewal management is overkill for us.” Companies are willing to do it all manually since they have good relationships with the customers.
Myth buster: It is true that the complexity of renewals is high in large companies. However, whether you are an SMB or a fast-growing company, the renewal management system is essential if you have over 200 customers. A one-to-one relationship is great but is not scalable as you grow. The automated renewal management will help you release more bandwidth to manage your client expectations and relationships.
Myth # 5: Renewal management doesn’t mean high customer retention and improved revenues
“What is the ROI from renewal management? It does not necessarily lead to improving revenues and retention.” These are some statements we hear from customers. And to be fair, some of these companies have a renewal management solution and not making the most of it.
Myth buster: Just having renewal management is not going to help you. It needs to be aligned with your business goals and customer expectations. Until then, the promised ROI of high customer retention and improved revenues is going to be elusive.
Every solution does not work for all the businesses, and this behavior of technology creates more myths. You can take advantage of our renewal management health assessment service that can help you understand the role of renewal management in your business and how can you unlock the true potential by improving your customer retention and revenues per customer. Write to us at email@example.com